Bombay High Court
Rakesh S. Kathotia & Anr vs Milton Global Ltd. & Ors on 22 September, 2014
Author: M. S. Sonak
Bench: Mohit S. Shah, M.S. Sonak
dss 1 APP-366-14
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ORDINARY ORIGINAL CIVIL JURISDICTION
APPEAL NO. 366 OF 2014
IN
ARBITRATION PETITION NO. 66 OF 2014
WITH
NOTICE OF MOTION (L) No.1778 of 2014
Rakesh S. Kathotia & Anr. .. Appellants
versus
Milton Global Ltd. & Ors. .. Respondents
Mr. Vikram Nankani, Mr. Naresh Thacker, Mr. Amit Vyas, Ms Neeti
Sachdeva i/b. M/s. Economic Law Practice for Appellants.
Mr. Nitin Thakkar, Sr. Counsel i/b Mr. Hiren Mehta with Ms. Ritu
Pathak for Respondent Nos.1,3,4,5,8 & 9.
Mr. Diniyar D. Madon, Sr. Counsel a/w. Mr. Mahendra Ghelani, Ms
Sneha Vani i/b M/s. Law Charter for Respondent Nos.2,10 to 15.
CORAM: MOHIT S. SHAH, C. J. &
M.S. SONAK, J.
Date of Reserving the Judgment : 26 August 2014
Date of Pronouncing the Judgment : 22 September 2014
JUDGMENT :( Per : M. S. Sonak, J.) 1] With the consent of learned counsel for the parties, this appeal is taken up for final disposal.
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2] This appeal is directed against the judgment and order
dated 2 July 2014 made by the learned Single Judge of this Court in Arbitration Petition No.66 of 2014, dismissing the appellants' application under Section 9 of the Arbitration and Conciliation Act, 1996 ("Act") mainly on the ground that there is no identity of the parties to the arbitration agreement, as contained in the Joint Venture Agreement dated 14 July 2001 (JVA) and the parties to the application.
3] In pursuance of JVA, the appellants representing 'Subhkam Group' and some of the respondents, representing the 'Vaghani Group' constituted 'Milton Global Limited' (respondent No.1), as a Joint Venture Company (JVC). The 'Vaghani Group' owned and controlled 'Milton Plastic Limited' (respondent No.4)), which was engaged in manufacture and marketing consumer durables and kitchen appliances under the brand name 'Milton'. The stated purpose of JVA was to infuse capital and expand manufacture and marketing activities under the brand name 'Milton'. The Management of JVC was vested in a Board of Directors to be appointed by the 'Subhkam Group' and 'Vaghani Group', holding 49.99% and 50.01% of the total issued and paid up capital of the JVC respectively.
4] The appellants contended that the terms of JVA contemplated that the entire distribution and marketing network of Milton Plastic Limited was to be exclusively undertaken by the 2 of 26 ::: Downloaded on - 24/09/2014 23:17:12 ::: dss 3 APP-366-14 JVC. However, in breach of the terms of JVA, the 'Vaghani Group' set up a competitive business through Hamilton Housewares Private Limited (respondent No.2). The involvement of the 'Vaghani Group' in siphoning of JVC business, is apparent from the circumstance that Ajay D. Vaghani, the authorised representative of the 'Vaghani Group', is the Managing Director of respondent No.2, to whom the JVC's business was being diverted. The appellants placed reliance upon statistics covering period 2003- 2004 to 2010-2011 to indicate the manner in which the losses of the JVC mounted considerably, whereas the turn over and profits of respondent No.2, increased manifold. In such circumstances, pending the resolution of disputes by arbitration, the appellants, representing 'Subhkam Group', invoked the provisions of Section 9 of the Act to seek the following interim measures:
(a) restraint upon respondent No.2, manufacturing and marketing 'goods' as defined under JVA ;
(b) in alternative to (a), directions to the respondents to maintain separate records of manufacturing and marketing of goods as aforesaid;
(c) directions to respondent No.2 to make complete disclosure and render accounts of all profits and incomes earned by them in relation to the aforesaid goods, since its inception;
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(d) for a direction to respondent Nos.2 to 15 to make available books of account pertaining to respondent No.2 since its inception to the petitioners or its auditors for inspection;
(e) for a direction to respondent Nos.1 and 2 to make complete disclosure and produce all manufacturing distribution and marketing agreements entered into with third party in respect of the aforesaid goods;
(f) for a restraint upon respondent Nos.2 to 15 from manufacturing, logistics distribution or marketing of aforesaid goods;
(g) for a restraint upon respondent Nos.2 to 15 from setting up any other entity or subsidiary for manufacturing logistic, marketing and distribution of the aforesaid goods;
(h) for a restraint upon respondent Nos.2 to 15 from disposing of acquiring or creating a charge upon immovable properties of respondent Nos.1 and 2 and from committing any other breach of the terms of JVA;
(i) for a restraint upon respondent Nos.3 to 15 from alienating, disposing of or creating any charge upon 4 of 26 ::: Downloaded on - 24/09/2014 23:17:12 ::: dss 5 APP-366-14 immovable property or otherwise committing any breach of terms of JVA;
5] By impugned order dated 2 July 2014, learned Single Judge of this Court has dismissed the appellants' application under Section 9 of the Act, not on merits, but mainly on the ground that there is no identity of the parties to the arbitration agreement as contained in JVA and the parties to the application under Section 9 of the Act, against whom the interim measures were claimed. In particular, learned Single Judge observed that appellant No.2, respondent Nos.2,3 and 10 to 15 are not parties to the arbitration agreement as contained in JVA. Further, learned Single Judge noted that the main allegations in the application seeking interim measures were directed against respondent No.3.
However, there was nothing on record to show that respondent No.3 was the Managing Director of respondent No.2. For all these reasons and by applying the principle laid down by the Supreme Court in Sukanya Holdings (P) Ltd. vs. Jayesh H. Pandya -
(2003) 5 SCC 531, the application under Section 9 of the Act was dismissed as not maintainable.
6] Mr. Nankani, learned counsel for the appellants made the following submissions in support of this appeal:
(a) The JVA was admittedly between the 'Subhkam Group' and 'Vaghani Group'. The two italicized expressions have been defined exhaustively under the JVA so as to include their respective and immediate
5 of 26 ::: Downloaded on - 24/09/2014 23:17:12 ::: dss 6 APP-366-14 relatives taken together and such other entities controlled by them or their immediate relatives directly or indirectly. Due to such specific definition, there was no warrant to infer the lack of identity between the parties to the arbitration agreement and the petition under Section 9 of the Act. In this regard, reliance was placed upon the decision of the Supreme Court in Cholro Controls India Private Limited vs. Severn Trent Water Purification Inc. & ors. - (2013) 1 SCC 641;
(b) Even otherwise, there is no bar under Section 9 of the Act to grant interim measures against the persons/entities, who may not be parties to the arbitration agreement. In this regard, reliance was place upon the decision of this Court in Girish Mulchand Mehta vs. Mahesh S. Mehta - 2010 (1) BCR 31;
(c) The finding that most of the allegations in the petition were against respondent No.3 and that there was nothing on record to show that respondent No.3 was the Managing Director of respondent No.2, constitutes an error apparent on face of record. There is ample material, which establishes that respondent No.3 was indeed the Managing Director of respondent 6 of 26 ::: Downloaded on - 24/09/2014 23:17:12 ::: dss 7 APP-366-14 No.2 and in any case, this position was not even disputed by the respondents;
(d) There is ample material on record, which establishes that 'Vaghani Group' , in breach of the terms of JVA, has siphoned of JVC's business to respondent No.2. As a result, the JVC is consistently posting losses, whereas, respondent No.2 of which respondent No.3 is a Managing Director, is posting manifold gains. Such relevant material has not even been adverted to by the learned Single Judge, much less considered, whilst making the impugned order.
7] Mr. Thakkar, learned senior counsel for respondent Nos.1,3,4,5,8 and 9 and Mr. Madon, learned senior counsel for respondent Nos.2 and 10 to 15 supported the impugned judgment and order, by relying upon Sukanya (surpa) principle. Further, the learned senior counsel, relying upon the decision of this Court in Hemant D. Shah vs. Chittaranjan D. Shah (Appeal No.658 of 2006 in Arbitration Petition No.295 of 2006) decided on 5 September 2006, submitted that the appellants, basically seek to lift corporate veil, which was impermissible in proceedings under Section 9 of the Act. Further, and without prejudice, they submitted that the appellants were themselves defaulters in matters of contribution towards the JVC and in any case were guilty of delay and laches. Accordingly, they submitted that the 7 of 26 ::: Downloaded on - 24/09/2014 23:17:12 ::: dss 8 APP-366-14 appellants were rightly declined interim measures under Section 9 of the Act.
8] In order to appreciate the rival contentions, it is necessary to make reference to certain provisions of the JVA, including in particular, the provisions which describe the parties thereto.
9] The JVA, describes the parties thereto, in the following manner:
I. MILTON PLASTICS LIMITED, a company incorporated under the provisions of the Indian Companies Act, 1956 and having its registered office at Asian Building, 4th Floor, R.Kamani Marg, Ballard Estate, Mumbai-400 001 and whose shares are listed on the BSE, hereinafter referred to as "MPL" (which expression shall unless repugnant to the context and meaning thereof be deemed to mean and include its successors and permitted assigns) of the FIRST PART;
II. Mr. Dineshkumar Ishwarlal Vaghani, Mr Kanaiyalal Ishwarlal Vaghani, Mr. Chirnajiv Ishwarlal Vaghani, Mr. Nilesh Ishwarlal Vaghani and Mr. Madhup Bansilal Vaghani having their office at Asian Building, 4th Floor, R.Kamani Marg, Ballard Estate, Mumbai-400 001, hereinafter referred to as the "the 8 of 26 ::: Downloaded on - 24/09/2014 23:17:12 ::: dss 9 APP-366-14 Vaghani Group" (which expression shall unless repugnant to the context and meaning thereof be deemed to mean and include their respective heirs and executors and permitted assigns and which is defined in detail later herein) of the SECOND PART;
III. MR. RAKESH S. KATHOTIA having his office at 2nd floor, Onlooker Building, 14 Sir P.M. Road, Fort, Mumbai 400001, hereinafter referred to as "THE SUBHKAM GROUP" (which expression shall unless repugnant to the context and meaning thereof be deemed to mean and include the nominees/associates (as intimated from time to time and which is defined in detail later herein) of Mr. Rakesh S. Kathotia and his/their heirs and executors and assigns) of the THIRD PART ;
IV. MILTON GLOBAL LIMITED, a company incorporated under the provisions of the Indian Companies Act, 1956 (the Company being originally incorporated under the name "Milton Logistics.com Private Limited" and thereafter converted into a public company on 13th May 2011 and thereafter its name having been changed to Milton Global Limited on 30 th May 2001) and having its registered office at Asian Building, 4th Floor, R.Kamani Marg, Ballard Estate, 9 of 26 ::: Downloaded on - 24/09/2014 23:17:12 ::: dss 10 APP-366-14 Mumbai-400 001 hereinafter referred to as "THE JVC"
or "THE COMPANY" (which expression shall unless repugnant to the context and meaning thereof be deemed to mean and include its successors) of the FOURTH PART.
10] From the aforesaid, it is apparent that the JVA is basically between the 'Vaghani Group' and 'Subhkam Group', which expressions have been defined in the JVA to mean as follows :
"The Vaghani Group shall mean Milton Plastics Limited Mr. Dineshkumar Ishwarlal Vaghani, Mr. Kanaiyalal Ishwarlal Vaghani, Mr. Chirnajiv Ishwarlal Vaghani, Mr. Nilesh Ishwarlal Vaghani and Mr. Madhup Bansilal Vaghani and their immediate relatives taken together and such other entities controlled by them or their immediate relatives directly or indirectly."
"The Subhkam Group shall mean Mr. Rakesh S. Kathotia and such other entities controlled by him or his immediate relatives or his group companies directly or indirectly."
(emphasis supplied) 11] Thus, the parties to the JVA were not merely the named individuals or entities, but rather the JVA was entered into between 'Vaghani Group' and 'Subhkam Group' as defined under the JVA. For instance, the 'Vaghani Group' does not mean and imply Mr. Dinesh I. Vaghani and others who may have been specifically named in the JVA, but would include their immediate relatives taken together and such entities controlled by them or their immediate relatives, whether directly or indirectly. Similarly, 10 of 26 ::: Downloaded on - 24/09/2014 23:17:12 ::: dss 11 APP-366-14 the 'Subhkam Group' shall mean, not merely Mr. Rakesh S. Kathotia, but shall also include such other entities controlled by him or his immediate relatives or his group companies, whether directly or indirectly. Such position emerges, not merely from the express words employed in the JVA, but also from the very tenor of the JVA.
12] The terms of arbitration agreement have to be construed in a broad and common sense manner. The JVA, which contains the arbitration agreement, being a commercial document, must be interpreted having regard to the words and phraseology employed therein. Normally, no part of the agreement, or for that matter terms, phrases or expressions should be regarded as a meaningless surplusage, particularly when the same are consistent with other parts of the agreement or tenor of the agreement between the parties. In case of ambiguity, the endeavour must be to ascertain intention of the parties, with a view to honour the same to the extent possible. The legislative object and the intent of the Act is to encourage arbitration, rather than permit parties to avoid reference to arbitration. Therefore, applying these principles and taking into consideration the width and amplitude with which the expressions 'Vaghani Group' and 'Subhkam Group' have been defined in the JVA, we are not prepared to accept that there was no identity between the parties to the arbitration agreement and the application under Section 9 of the Act.
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13] Apart from the express words, terms and phraseology
employed in the JVA for defining the expressions 'Vaghani Group' and 'Subhkam Group', there is other intrinsic evidence in the JVA, which, in our opinion supports such construction:-
(a) Throughout the JVA, there is reference to the two groups, i.e., 'Vaghani Group' and 'Subhkam Group' and not to any individuals or entities as such;
(b) The recitals to the JVA referred to the two groups agreeing to subscribe 32,50,000 equity shares, which for the MPL/Promoters, would include certain shares already subscribed by 'Vaghani Group' and 'Subhkam Group'. The recitals proceed to state that the shares already subscribed by the two groups shall be counted for the purposes of calculating the shares in respect of groups in the JVC;
(c) The recitals to the JVA, then, make specific reference to two groups and provide that each of the groups shall act jointly in respect of their 'constituent members through an authorised representative' ;
(d) The capital structure of the JVC has been defined, quite elaborately under clause 2 of the JVA, again by reference to the two groups;
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(e) Clause 3.1 of the JVA provides that the Promoters of MPL are parties to the JVA, in their capacity as parts of 'Vaghani Group';
(f) Clause 6.3 of the JVA declares that the JVC is a 'quasi partnership' where it is intended that 'Subhkam Group' and 'Vaghani Group' shall have equal shares in the management, except for and to the extent were provided for in the agreement;
(g) Clause 6.4 of the JVA provides that the JVC shall be managed by Board, comprising six Directors, three to be nominated by ''Vaghani Group' and three by 'Subhkam Group';
(h) Clause 11.2 of the JVA specifically provides that whilst there are different parties to the JVA, they fall into two groups, viz., 'Vaghani Group' and 'Subhkam Group' and that each of the two groups shall be represented by some authorised representatives to be nominated by the groupds. Further, the rights of each of the two groups under the JVA shall be exercised and the obligation of each of the two groups shall be complied through such common representative nominated by each of the two groups;
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(i) Clause 12 of the JVA, which is entitled
'responsibilities of the Vagani Group' provides that wherever it is required that the 'Vaghani Group' carries out certain acts or comply with any terms of the JVA or is otherwise bound by the JVA, then the persons executing the JVA 'as a part of and/or on behalf of the Vaghani Group' shall take all efforts to submit and ensure that the 'Vaghani Group' carries out such acts, complies with or gives effect to the terms of the JVA or by otherwise bound by the JVA.
14] All the aforesaid provisions, in our opinion, make it clear that the parties to the arbitration agreement were not merely individuals or entities specifically named in the JVA, but the parties were the 'Vaghani Group' and 'Subhkam Group', which expressions have been elaborately defined in the JVA to include inter alia not just the named persons or entities, but also their immediate relatives taken together and such other entities controlled by them or by their immediate relatives, whether directly or indirectly. In such a situation, there really arises no question of lifting of any corporate veil as such. In Hemant D. Shah (supra), this Court was not dealing with a situation wherein the JVA was between two groups and the expression 'group' was peculiarly defined, as in the present case. The said decision has therefore, no application to the facts and circumstances of the present case.
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15] There can be no serious dispute, nor was any raised,
that appellant No.2, i.e., Subhkam Ventures (I) Pvt. Ltd. is an entity controlled by appellant No.1 Mr. Rakesh S. Kathotia. If so, then appellant No.2 stands clearly included in the expression 'Subhkam Group'. This term is defined under the JVA to mean Mr. Rakesh S. Kathotia and such other entities controlled by him or his immediate relatives or his group companies directly or indirectly. Similarly, there can be no serious dispute, nor was any seriously raised, that Ajay D. Vaghani (respondent No.3), Manisha A. Vaghani (respondent No.13), Jyoti D. Vaghani (respondent No.15) or for that matter Bansilal I. Vaghani (respondent No.14), Nilesh I. Vaghani (respondent No.10) are the immediate relatives of the persons specifically referred in the JVA. The same is the position with Yogesh I. Vaghani HUF (respondent No.11) which is obviously an entity included within the extended definition of the expression 'Vaghani Group'.
16] In so far as, Hamilton Housewares Pvt.Ltd.
(respondent No.2) is concerned, reference to its shareholding pattern, makes it clear that it is an entity directly controlled or in any case indirectly controlled by the named representatives of 'Vaghani Group' and therefore, stands included within the expression 'Vaghani Group'. The share holding pattern of respondent No.2 is as follows :
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Shareholding Pattern of Hamilton House Wares Private Limited (respondent no.2)
- As on 28.09.2011 & 28.09.2012 & 27.09.2013 Holding of Shares S. Name of the Shareholders Nos. % No (percentage) A: Comprising or Constituting the "Vaghani"
1 Ajay Dinesh Vaghani - Respondent No.3 3,428,032 30.18% 2 Manisha Ajay Vaghani - Respondent No.13 1,375,500 12.11% 3 Ajay Dinesh Vaghani (HUF) 2,118,500 18.65% 4 Hamilton Consultants Private Limited 3,422,916 30.13% 5 Indira Bansilal Vaghani 208,300 1.83% 6 Jyoti Dinesh Vaghani- Respondent No.15 Sub Total (A) B: Others 208,300 10,761,548 1.83% 94.73% 7 Mahendra Kalyanji Ghelani 2 0.00% 8 Steadfast Holdings Private Limited 40000 0.35% 9 Rasik Thakkar 198,450 1.75% 10 United International General Trading FZE 360,000 3.17% Sub-Total (B) 598452 5.27% Grand - Total[(A) + (b)] 11,360,000 100.00% 17] In Sukanya Holdings (supra), the Supreme Court was not dealing with arbitration agreement between two groups as in the peculiar facts and circumstances of the present case. Sukanya, was a case where composite suit was filed against parties to an arbitration agreement and strangers thereto. The subject matter of the suit included, not merely the subject matter of the arbitration agreement, but other disputes as well. In such fact situation, the Supreme Court ruled that there was no provision for splitting up of the cause or parties and reference of the subject matter to arbitration. In the present case, however, the JVA which contains 16 of 26 ::: Downloaded on - 24/09/2014 23:17:12 ::: dss 17 APP-366-14 the arbitration agreement, is basically between the 'Vaghani Group' and 'Subhkam Group'. Both these expressions have been exhaustively defined in the JVA so as to include, not merely the named persons/entities, but also their immediate relatives taken together and such other entities controlled by them or their immediate relatives, whether directly or indirectly. In such circumstances, Sukanya is clearly distinguishable.
18] In Chloro Controls -(2013) 1 SCC 641, the Supreme Court has accepted the application of 'group of companies doctrine'. This doctrine has developed in the international context, whereby an arbitration agreement entered into by a company, being one within a group of companies, can bind its non-signatory affiliates or sister or parent concerns, if the circumstances demonstrate that the mutual intention of all the parties was to bind both the signatories and the non-signatory affiliates. By quoting Russel on Arbitration (23rd Edn.), the Supreme Court has held that this theory has been applied in a number of arbitrations so as to justify a tribunal taking jurisdiction over a party who is not a signatory to the contract containing the arbitration agreement. In applying such a doctrine, however, the Supreme Court has cautioned that 'intention of the parties' is a very significant feature which must be established before the scope of arbitration can be said to include signatory as well as the non-signatory parties and that resort to this doctrine must be only in exceptional cases. The Court will examine applicability from the touchstone of the direct relationship to the party signatory to the arbitration agreement, 17 of 26 ::: Downloaded on - 24/09/2014 23:17:12 ::: dss 18 APP-366-14 direct commonality of the subject matter and the agreement between between the parties being a composite transaction. The doctrine will be applied where the performance of the mother agreement may not be feasible without aid, execution and performance of the supplementary or ancillary agreements, for achieving the common object and collectively having bearing on the dispute. Besides all this, the Court would have to examine whether a composite transaction of such parties would serve the ends of justice.
19] In the same case, the Supreme Court has quoted with approval its earlier decision in Vessel M.V. Baltic Confidence vs. State Trading Corporation of India Limited - (2001) 7 SCC 473, by observing that in India, the law has been construed more liberally, towards accepting incorporation of arbitration agreement, by reference. In the said case, the Court was considering the question whether the arbitration clause in a charter party agreement was incorporated by reference in the bill of lading and what the intention of the parties to the bill of lading was. The primary document was the bill of lading, which, if read in the manner provided in the incorporation clause thereof, would include the arbitration clause of the charter party agreement. The Court observed that while ascertaining the intention of the parties, attempt should be made to give meaning and effect to the incorporation clause and not to invalidate or frustrate it by giving it a literal, pedantic and technical reading.
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20] In Chloro Controls (supra), one of the issues raised
was about the correctness of the judgment in Sukanya Holdings (supra). The Supreme Court declined to examine the merit or otherwise, of such issue on the ground that Sukanya Holdings (supra) was a case arising under Section 8 Part-I of the Act, whereas the Chloro Controls (supra) concerned Section 45 Part-II of the Act. However, in paragraph 133.2, the Supreme Court made the following observations :
133.2 Secondly, in that case the Court was concerned with the disputes of a partnership concern. A suit had been filed for dissolution of partnership firm and accounts also challenging the conveyance deed executed by the partnership firm in favour of one of the parties to the suit.
The Court noticing the facts of the case emphasised that where the subject-matter of the suit includes the subject- matter for arbitration agreement as well as other disputes, the Court did not refer the matter to arbitration in terms of Section 8 of the Act. In the case in hand, there is a mother agreement and there are other ancillary agreements to the mother agreement. It is a case of composite transaction between the same parties or the parties claiming through or under them falling under Section 45 of the Act. Thus, the dictum stated in para 13 of the judgment of Sukanya would not apply to the present case.
21] In the present case, there is no necessity to apply 'group companies doctrine' or the principle accepted in Chloro Controls (supra). This is because, upon the express wordings of the JVA, it is clear that the same was entered into between two groups , i.e., 'Vaghani Group' and 'Subhkam Group'. The two expressions, have been exhaustively defined so as to include 19 of 26 ::: Downloaded on - 24/09/2014 23:17:12 ::: dss 20 APP-366-14 within their ambit, not just the named persons and entities, but also their immediate relatives taken together and such other entities controlled by them or their immediate relatives directly or indirectly. The persons/entities named in the agreement have basically signed and executed the JVA, in their capacity as representatives of the two groups, which they represent.
22] Even otherwise, there is no jurisdictional bar to the Court granting interim measures against the persons or entities, who may strictly not be parties to the arbitration agreement. In Girish Mehta (supra), the Division Bench of this Court made the following observations:
12. "The next question is whether order of formulating the interim measures can be passed by the Court in exercise of powers under Section 9 of the Act only against a party to an Arbitration Agreement or Arbitration Proceedings. As is noticed earlier, the jurisdiction under Section 9 can be invoked only by a party to the Arbitration Agreement. Section 9, however, does not limit the jurisdiction of the Court to pass order of interim measures only against party to an Arbitration Agreement or Arbitration Proceedings; whereas the Court is free to exercise same power for making appropriate order against the party to the Petition under Section 9 of the Act as any proceedings before it. The fact that the order would affect the person who is not party to the Arbitration Agreement or Arbitration Proceedings does not affect the jurisdiction of the Court under Section 9 of the Act which is intended to pass interim measures of protection or preservation of the subject matter of the Arbitration Agreement."
20 of 26 ::: Downloaded on - 24/09/2014 23:17:12 ::: dss 21 APP-366-14 23] There is material on record which establishes beyond doubt that respondent No.3 was the Managing Director of respondent No.2. In fact this position was not even disputed by the respondents. Further clause 11.2 of the JVA specifically refers to respondent No.3 as the representative of 'Vaghani Group'. This clause is also significant, in that it reiterates that while there are different parties to this agreement, they fall into two groups, viz., 'Vaghani Group' and 'Subhkam Group', each of the two groups consisting of parties as defined in the definition clause of the agreement. Clause 11.2 to the JVA reads thus:
11.2 It is clarified and agreed that while there are different parties to this Agreement, they fall into two groups, viz., the Vaghani Group and the Subhkam Group, each of the two groups consisting of parties as defined in the Definitions Clause of this Agreement. The rights of each of the two groups under this Agreement shall be exercised and the obligations of each of the two obligations shall be complied through a common representative nominated by each of the two groups. The parties hereto have agreed that for the time being, the Vaghani Group shall be represented by Mr. Ajay D. Vaghani, (being referred to herein as "the Vaghani Representative") and the Subhkam Group shall be represented by Mr. Rakesh S. Kathotia (being refereed to herein as "the Subhkam Representative"). It is agreed to by the parties hereto that any right exercised, statements and representations made, consent or instructions given or withdrawn or denied or any other act or deed, whether oral or written, performed or made by such Representative shall be deemed to have been duly, validly and irrevocably made on behalf of each of the parties of the group which he represents and shall be binding on each of the parties of
21 of 26 ::: Downloaded on - 24/09/2014 23:17:12 ::: dss 22 APP-366-14 the groups he represents. The parties may change their representative from time to time by a written communication to the representative of the other group provided that the new representative shall be a party to this Agreement unless otherwise agreed to in writing by the representative of the other group.".
24] In light of the aforesaid discussion, we are of the opinion that the arbitration petition under Section 9 of the Act, could not have been dismissed on the ground that there was no identity between the parties to the arbitration agreement and the parties to the arbitration petition.
25] That takes us to the merits of the case for grant of interim measures at this stage.
26] It is the case of the appellants that for the period commencing from 2003-2004 and upto 2010-2011 and even thereafter 'Vaghani Group' has siphoned of the business of the JVC, which is evident from the circumstance that the turnover of JVC as fallen drastically and ended out in losses, whereas the turn over and profits of respondent No.2 which is owned and controlled by 'Vaghani Group' has increased manifold. In this regard, the appellants placed reliance upon the following chart:
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Respondent No.1 Respondent No.2
Financial JVC's - Sales JVC's - Net Hamilton's - Hamilton's
year Turn-over Profit/ Sales Turn- - Net
(In Rs.Lacs) (Loss) over Profit/
(In Rs.Lacs ) (In Rs.Lacs) (Loss)
(In Rs.Lacs)
2004-05 3085.12 9.53 - -
2005-06 320.02 (119.73) 11951.68 676.84
2006-07 4.82 (1237.36) 14614.51 983.91
2007-08 5.13 (99.25) 17432.96 1018.42
2008-09 0.59
ig (92.55) 21457.00 1207.00
2009-10 0.50 (66.23) 23130 1442
2010-11 0.42 (147.75) 31165 2088
2011-12 12.12 54.93 39390 2133
27] The respondents, have denied the appellants' version.
They have contended that wayback in the year 2005, the 'Vaghani Group' had called upon the appellants to make contribution of further capital in terms of the JVA. However, the appellants, in breach of the terms of JVA avoided doing so. Further since the year 2009, appellant No.1 stepped down from the board of JVC and in general, 'Subhakam Group' withdrew from participation in the affairs of JVC. In any case, if the agreement or transfer of brands, executed on 13 September 2000 is perused, then it is clear that the restrictions to carry out competing business, were not to apply to any existing business carried on by certain specified 23 of 26 ::: Downloaded on - 24/09/2014 23:17:12 ::: dss 24 APP-366-14 entities specifically referred to therein. One of the entities specified was D.J. Glass Private Limited, which entity is nothing , but 'Hamilton Housewares Private Limited', (respondent No.2) consequent upon change of name with effect from 5 December 2003. It is accordingly contended on behalf of the respondents that the appellants have not made out any case of grant of interim measures.
28] On perusal of the record, communication dated 10 February 2009 addressed by appellant No.1 to the Board of Directors, JVC suggests that appellant No.1 stepped down from the Board of the JVC 'due to certain organizational reasons'. This communication ends with conveyance of sincere thanks to all members of the Board and wishes the JVC the best, in all its future endeavours. Even though, the appellants complain of siphoning of the JVC's business to respondent No.2, progressively from the financial year 2004-2005 to 2011-2012, the communication dated 10 February 2009 addressed by appellant No.1 to Board of JVC, makes no complaint or lodges no protest in that regard. There is, under the circumstances, prima facie substance in the respondents' contention that the appellants had withdrawn from the participation in the day to day affairs of the JVC at least with effect from the year 2010.
29] The Chart, upon which the appellants placed strong reliance to suggest steady decline in the fortunes of JVC, makes reference to a period spread over seven to eight years. The 24 of 26 ::: Downloaded on - 24/09/2014 23:17:12 ::: dss 25 APP-366-14 appellants have themselves relied upon their communication dated 30 October 2012, in which they as representatives of 'Subhkam Group' expressed concern at the worsening of the financial health of the JVC at rapid pace. In this communication, the appellants made reference to 'mounting losses since financial year 2005-06' which they describe as being of 'crippling in nature'.
In this communication,the appellants expressed surprise as to how a gross total income of the JVC was reduced from Rs.3085.12 lacs in financial year 2005 to Rs.0.42 lacs, in financial year 2011 in spite of the fact that products of 'Milton' brand are visible all over the country.
30] There is really no explanation on the part of the appellants, as to the steps taken by them for the period between 2005 and 2011, despite their case that, through such six long years, they witnessed the steady reversal of JVC's fortunes. The Appellants, in the aforesaid communication dated 30 October 2012, themselves record that they have entrusted the total management and control of the JVC and its business into the hands of the 'Vaghani Group' and in the process respondent No. 3, as the representative of 'Vaghani Group' had been appointed as Managing Director of the JVC with full control of the JVC whilst appellants remained 'as a passive investor only' in the JVC company. From this, it does appear that the appellants have been indolent, in so far as the protection of their claimed rights are concerned.
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31] In the result, we too agree with the final conclusion
recorded by the learned Single Judge, however, for different reasons as indicated in this judgment and order. We, therefore, hold that the arbitration petition under Section 9 of the Act was maintainable. However, for the reasons indicated above, this is not a case for grant of any interim measures at this stage. The appeal is accordingly dismissed. In the facts and circumstances of the case, there shall be no order as to costs.
32] In view of disposal of appeal, Notice of Motion (L) No. 1778 of 2014 does not survive and is, accordingly, disposed of.
(CHIEF JUSTICE) (M. S. SONAK, J.) 26 of 26 ::: Downloaded on - 24/09/2014 23:17:12 :::